Banking and Financial Institutions MCQ Quiz - Objective Question with Answer for Banking and Financial Institutions - Download Free PDF

The correct answer is 6.

Key Points

• Six Indian banks were nationalized on 15^th April 1980.
• Nationalization is the transfer of ownership and management of an undertaking from private hands to the states.
• Banks were nationalized in India through an ordinance passed in the year 1969.
• Indira Gandhi was the prime minister who nationalized banks in India.
• The first nationalization of banks took place on 19^th July 1969.
  • 14 banks were nationalized in 1969.
  • It was based on the banks whose deposit exceeds Rs. 50 crores.
• The second time government nationalized banks on 15^th April 1980.
  • 6 banks were nationalized in 1980.
  • It was based on the banks whose deposit exceeds Rs. 200 crores.

Mistake Points

• Most of the nationalized banks in India are also referred to as 'public sector banks'.
• After the merger of many banks, currently there are a total of 12 public sector banks in India including the State Bank of India (based on the RBI official website).

The correct answer is - Principle of Causa Proxima

Key Points

• Principle of Causa Proxima
  • This principle refers to the nearest or most immediate cause of a loss or damage.
  • In insurance, compensation is only provided if the direct and insured cause is responsible for the loss, not a remote or indirect cause.
  • For example, if a policyholder suffers damage due to a covered peril, like a fire, the insurer will compensate for the loss as the fire is the proximate cause.
  • It ensures that claims are settled based on the most relevant and direct cause, avoiding disputes over unrelated events.

Additional Information

• Principle of Indemnity
  • This principle ensures that the insured is compensated only for the actual loss suffered, up to the policy's limit.
  • The purpose is to restore the insured to their original financial position before the loss occurred.
  • It is commonly applied in non-life insurance like property, motor, and health insurance.
• Principle of Subrogation
  • After compensating the insured, the insurer gains the legal rights to recover the loss from a third party responsible for it.
  • For instance, if damage occurs due to a third party, the insurer can sue the third party to recover the amount paid to the insured.
• Principle of Utmost Good Faith
  • This principle obligates both the insured and the insurer to disclose all material facts honestly at the time of signing the contract.
  • Failure to disclose relevant information can result in the policy being declared null and void.

The correct answer is - Central Banking System

Key Points

• Central Banking System
  • The Central Banking System refers to the regulatory body of a nation's monetary system, such as the Reserve Bank of India (RBI), Federal Reserve, or European Central Bank.
  • It primarily focuses on monetary policy, managing currency, and regulating commercial banks, rather than providing digital banking services directly to customers.
  • Unlike digital banking solutions, which facilitate online transactions and account management, the central banking system is not designed for individual customer interactions.

Additional Information

• Types of Digital Banking
  • Unified Payment Interface (UPI): A real-time payment system that allows instant fund transfers between two bank accounts via a mobile application.
  • Internet Banking: A system that enables customers to conduct financial transactions online through a bank's website.
  • Mobile Banking: Banking services offered through a mobile application, including fund transfers, bill payments, and balance inquiries.
• Key Differences
  • Digital banking focuses on customer-centric services, while the central banking system is more policy-driven.
  • Examples of digital banking involve direct interaction with customers, whereas the central banking system operates at a macro level to regulate the financial ecosystem.
• Exam Tip
  • Always distinguish between services offered for customer convenience (e.g., UPI, Internet Banking) and regulatory systems (e.g., Central Banking System) when answering such questions.

The correct answer is - Physical proximity and access with customers

Key Points

• Physical proximity and access with customers
  • Business Correspondents (BCs) are specifically designed to ensure proximity and access to customers in remote areas.
  • The model involves individuals or entities acting as representatives of banks, making services available at the doorstep of rural and underserved populations.
  • This feature makes physical proximity a core strength of the BC model, rather than a challenge.

Additional Information

• Challenges faced by the Business Correspondents model
  • High maintenance cost: The operational expenses of maintaining BC infrastructure, paying commissions, and handling cash logistics can be significant.
  • Small size of transactions: Many BCs deal with low-value transactions, reducing profitability and sustainability.
  • Low telecommunication access: Remote areas often lack reliable telecommunication networks, hindering real-time banking operations through BCs.
  • Other issues: Insufficient training, lack of financial literacy among customers, and cash management challenges can also impact the BC model.
• Importance of the BC model
  • It is a vital approach to achieving financial inclusion in rural and underbanked regions.
  • BCs provide services such as account opening, cash deposits and withdrawals, fund transfers, and microinsurance.
  • The model supports government initiatives like the Pradhan Mantri Jan Dhan Yojana by expanding banking reach.

The correct answer is - The Indian Coinage Act, 1906

Key Points

• The Indian Coinage Act, 1906
  • The Act governs the minting, issue, and circulation of coins in India.
  • It is responsible for ensuring the standardization of coins and their legal tender status.
  • This Act specifically relates to banking functions involving coinage transactions.
  • Ensures compliance with the denomination standards set by the Government of India for coins used in banking and other financial systems.

Additional Information

• The Bankers Books Evidence Act, 1891
  • This Act governs the admissibility of evidence from bankers' books in court proceedings.
  • It does not regulate specific banking functions but rather provides procedural rules for using bank records as evidence.
• The Negotiable Instruments Act, 1881
  • This Act governs the use of negotiable instruments such as cheques, bills of exchange, and promissory notes.
  • It primarily deals with legal aspects of transactions rather than specific banking functions.
• The Banking Companies Act, 1970/1980
  • These Acts were introduced to nationalize banks and regulate their management.
  • While important for banking governance, they do not directly govern specific banking functions like coinage.

The correct answer is 6.

Key Points

• Six Indian banks were nationalized on 15^th April 1980.
• Nationalization is the transfer of ownership and management of an undertaking from private hands to the states.
• Banks were nationalized in India through an ordinance passed in the year 1969.
• Indira Gandhi was the prime minister who nationalized banks in India.
• The first nationalization of banks took place on 19^th July 1969.
  • 14 banks were nationalized in 1969.
  • It was based on the banks whose deposit exceeds Rs. 50 crores.
• The second time government nationalized banks on 15^th April 1980.
  • 6 banks were nationalized in 1980.
  • It was based on the banks whose deposit exceeds Rs. 200 crores.

Mistake Points

• Most of the nationalized banks in India are also referred to as 'public sector banks'.
• After the merger of many banks, currently there are a total of 12 public sector banks in India including the State Bank of India (based on the RBI official website).

The correct answer is Agriculture.

• In India, commercial banks have the highest share in the disbursement of credit to Agriculture.​

​Important Points 

• Priority Sector Lending: The government of India and the Reserve Bank of India consider some sectors as important as they need development to fulfill the basic needs of the country.
• Categories under priority sector: Agriculture.
  • Micro, Small and Medium Enterprises
  • Export Credit
  • Education
  • Housing
  • Social infrastructure
  • Renewable Energy
  • Others.

The correct answer is State Bank of India.

Key Points

State Bank of India:

• SBI is the largest commercial bank in India. SBI stands for State Bank of India. It is a public sector bank. Its headquarters is situated in Mumbai, Maharashtra.
• It is the largest commercial bank in India.
• Tag-line - Pure banking nothing else; With you all the way; The Nation banks on us; A Bank to the common man; A banker to every Indian.
• The latest Tagline of SBI is "Bade Bank Ke Bade Fayade" 
• Headquarters: Mumbai, Maharashtra
• State Bank of India (SBI) is an Indian multinational, public sector banking and financial services statutory body headquartered in Mumbai, Maharashtra.

The correct answer is 1975.

• The first Regional Rural Bank was established in India in the year 1975.

Key Points

• Regional Rural Banks:
  • The Regional Rural Banks (RRBs) are the newest form of banks that came into existence since the middle of the 1970s.
  • It was sponsored by individual nationalised commercial banks with the objective of developing the rural economy by providing crediting and depositing facilities for agriculture and other productive activities of all kinds in rural areas.
  • Regional Rural Banks (RRBs) were set up under the terms of the 26 September 1975 ordinance and the RRB Act of 1976.
  • First Regional Rural Bank was established on 2 October 1975.
  • The Prathama Bank of Moradabad, Uttar Pradesh was the first RRB.
  • Currently, there are 43 RRBs in India.

Additional Information

• Oudh Commercial Bank was the first complete Commercial Bank of India.
• ​The Imperial Bank was established in the year 1921 by merging three main Presidency Banks.
  • It was later rechristened as State Bank of India in 1955.
• Nationalisation of Banks was done in 1969.

The correct answer is Asian Development Bank.

Key Points

• The Asian Development Bank has offered $68 million in funding to IIFL Home Finance for expanding its footprint in the affordable and green housing segment.
• The funding comprises a direct ADB loan of $58 million and another $10 million concessional loan from the Canadian Climate Fund.
• This is IIFL Home Finance’s first loan from ADB or any other development finance institution.

Additional Information

• The Asian Development Bank (ADB) provided a record USD 4.6 billion loans to India in 2021, including USD 1.8 billion towards coronavirus response.
• USD 1.5 billion was towards vaccine procurement and USD 300 million to strengthen primary health care in urban areas and the country's future pandemic preparedness.
• The agency extended a USD 2.2-billion support for 12 state projects.
• The Asian Development Bank is a regional development bank established on 19 December 1966.
• The Asian Development Bank:
  • Headquarters: Mandaluyong, Philippines
  • President: Masatsugu Asakawa (As of Feb 2022)
  • Membership: 68 countries
  • Founded: 19 December 1966

Solution-

• Bank of Baroda is a public sector bank in India. Maharaja Sayajirao Gaekwad III of Baroda established this bank on July 20, 1908, in Baroda, the native state of Gujarat. This bank along with 13 other major commercial banks was nationalized by the Government of India on July 19, 1969.
• Indian Bank is a state-owned banking and financial services company, established in 1907. The headquarter of the bank is in Chennai, it has a large network of 2836 branches all over the country. It provides many banking and financial services such as savings accounts, fixed deposits, loans, etc.
• Canara Bank is indigenous and the third largest public sector bank of India, this bank was established on 1st July 1906 by Late Shri Ammembal Subbarao Pai and its headquarter is located in Bangalore Karnataka.
• Central Bank of India is a major public sector bank in India that was established in 1911 by Sir Sorabji Pochkhanwala, a Parsi banker influenced by the Swadeshi movement. It also has the distinction of being the first Indian commercial bank that was fully owned and managed by Indians at the time of its inception.

The correct answer is Malegam Committee.

Key Points

•  The creation of a separate category for NBFCs operating in the microfinance sector (NBFC-MFI) was done based on the recommendations of the Malegam Committee.
• The Malegam Committee was appointed by the Reserve Bank of India (RBI) in 2010 to review the microfinance sector in India and provide recommendations for its growth and development.
• The committee recommended the creation of a separate category of NBFCs for microfinance to regulate and supervise them effectively, and to ensure that they comply with the prescribed norms and standards.
• The NBFC-MFIs are required to obtain a certificate of registration from the RBI and comply with the regulations on interest rates, lending practices, borrower protection, and reporting requirements.

Additional Information

•  Narasimhan Committee:
  • It was appointed by the RBI in 1991 to review the financial system in India and provide recommendations for its reforms.
  • It recommended the creation of a four-tier banking system, the establishment of asset reconstruction companies, and the liberalization of the banking sector.
• Deepak Parekh Committee:
  • ​It was appointed by the RBI in 2018 to review the existing framework for the MSME sector and suggest measures to strengthen it.
  • It recommended the creation of a distressed asset fund, the simplification of the loan application process, and the enhancement of credit guarantee schemes.
• PK Mohanty Committee:
  • It was appointed by the RBI in 2013 to review the regulatory framework for the NBFC sector and suggest measures to enhance its stability and development.
  • It recommended the creation of a new category of NBFCs for infrastructure finance, the enhancement of risk management practices, and the strengthening of the supervisory framework.

The correct answer is IRDAI.

Key Points

• The Insurance Regulatory and Development Authority of India (IRDAI) is a regulatory body under the jurisdiction of the Ministry of Finance, Government of India.
• It is tasked with regulating and licensing the insurance and re-insurance industries in India.
• It was constituted by the Insurance Regulatory and Development Authority Act, 1999, an Act of Parliament passed by the Government of India.

Additional Information

• ​CRISIL
  • ​CRISIL is an Indian analytical company providing ratings, research, risk, and policy advisory services.
  • It is a subsidiary of the American company S&P Global.
  • CRISIL was the first credit rating agency in India, introduced in 1988 by the ICICI and UTI jointly with share capital coming from SBI, LIC and United India Insurance Company.

The correct answer is Mumbai.  Key Points 

• RBL Bank, formerly known as Ratnakar Bank, is an Indian private sector bank headquartered in Mumbai.
• It was founded on 6th August 1943 with two branches in Kolhapur and Sangli founded by Babgonda Bhujgonda Patil from Sangli & Gangappa Siddappa Chougule from Kolhapur.
• RBL bank received the banking license from the Reserve Bank of India in the year 1970.
• In August 2014, the name of the bank was changed to RBL Bank Limited.

Additional Information 

• The current MD and CEO of the bank as of October 2021 is Mr Vishwavir Ahuja.
• The bank provides the following facilities:
  • corporate and institutional banking
  • commercial banking
  • branch and business banking
  • retail assets
  • development banking and financial inclusion
  • treasury and financial market operations

The correct answer is Vision 2021.

Key Points

• Vision 2021:
  • The Reserve Bank of India (RBI) has released ‘Payment and Settlement Systems in India: Vision 2019 – 2021’, a vision document for a safe, secure, quick, and affordable e-payment system.
  • The core theme of the vision document is ‘Empowering Exceptional (E)payment Experience’, which stresses empowering every Indian to access a bunch of e-payment options safely and conveniently. Hence, Option 3 is correct.
  • The main agenda of the vision document is the ‘no-compromise approach towards safety and security of payment systems.
  • Vision 2021 outlined the measures that the central bank will undertake to foster innovation, cybersecurity, financial inclusion, customer protection, and competition.
  • The vision document aims to achieve a ‘highly digital and cash-lite society through Goal Posts (4Cs): Competition, Cost-effectiveness, Convenience, and Confidence.
  • Key focus areas:
    • Boosting customer experience with robust grievance redressal
    • Empowering e-payment service providers
    • Enabling eco-system and infrastructure for the e-payment system
    • Putting down forward-looking regulations
    • Undertaking Risk-focused Supervision

Additional Information

• The Reserve Bank of India:
  • It was established on April 1, 1935, under the provisions of the Reserve Bank of India Act, 1934.
  • The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937.
  • The Central Office is where the Governor sits and where policies are formulated.
  • Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India.
  • The current Governor of RBI is Sanjay Malhotra.​​​